When it comes to buying a home, I’m a firm believe that it’s a great investment but the timing has to be right for you. Beyond the down payment and closing costs, knowing the long-term cost of homeownership will help you get the right home for you. With declining interest rates and already low inventory, it’s important to be prepared and have realistic expectations because the market could get hot! Whether the time is now or you’ve just started planning, there are things to keep in mind when buying a home.
First, know what you can afford. You can get approved for up to 45% of your income, but most financial gurus recommend spending no more than 25% of your income toward your mortgage. This allows you to save for emergencies, pay off debt, and enjoy life with less financial stress. Focus less on the interest rate, and more on what you can afford to spend monthly. If rates go down, refinance! If they stay the same or go up, you’re locked in and will be glad you bought when you did.
Your first home also doesn’t have to be your dream home. You may have to compromise. Start with what you can afford now, then in a few years, use the equity gained toward your next home. Decide on one or two key priorities and be willing to adapt. Keeping an open mind will help you love your home for what it is.
A home costs more than just your mortgage. Property tax and insurance are part of the mortgage payments, but they aren’t fixed amounts and could go up over time. You’ll probably want to decorate and furnish when you move in. Even if you already have furniture, things don’t always fit your new space. Most importantly, maintenance and the unexpected WILL happen! One of my favorite pieces of financial advice is to save at least 1% of the current value of your home for expected maintenance each year so you’re always prepared.
Always plan to stay at your home. Owning a home can be a fantastic investment, but equity is usually a long-term gain. While we’ve seen values soar in the past few years it’s not guaranteed. Plan to stay at least 2 years to avoid additional taxes, possibly longer to gain enough value to cover closing costs, Realtor commissions, and moving expenses when you sell.
It's important to understand purchase terms. When you buy a home, you need to know the terms of purchase and how it affects your ownership. Knowing details like HOA fees, if the home has a septic system, if it’s in a flood zone, and if you’re getting a home warranty are just a few things to consider when signing the contract that can affect your finances later on.
Lastly, be sure to work with a trusted Realtor and lender. You should trust the people you’re working with and keep an open dialogue. Your Realtor and lender should listen to your needs, not try to push you over your budget or outside your comfort zone. They serve as guides with expert knowledge to enhance the buying process, and you are the decision-maker. Be prepared to provide your full financial picture to your lender so you and your Realtor have a solid budget to work within. You’ll be spending a lot of time together, so it helps to like them!
Lynn is an affiliate broker with Compass and enjoys strategizing so buyers and sellers can maximize their outcomes. She is actively involved with Greater Nashville Realtors, serving on the Housing Opportunities and Affordability committee, and is the 2024 YPN Chair. You can find her on Instagram @lynnsmith.realtor or email her at lynn@lynnsmithrealtor.com.
